Etihad subscribes to airberlin convertible bond as it reveals losses

By Dino D'Amore
April 28, 2014 14:50

Etihad Airways has welcomed airberlin’s decision to “accelerate structural change within the airline to target sustainable profitability”, the airline said in a statement today in response to airberlin’s financial results issued on Sunday night.

airberlin announced a strategic review of its long-term business model as it reported its 2013 annual financial results. The predominant objective will be to restructure the airline and shape a robust business model that is fit for purpose in today’s competitive market conditions. For this purpose airberlin will strengthen its management board with the appointment of a Chief Restructuring Officer.

In support of this restructuring, Etihad Airways will subscribe to a €300 million eight per cent perpetual subordinated cumulative convertible guaranteed bond. This will form part of a recapitalisation which is intended to strengthen and assist in the reorganisation of airberlin’s capital structure and secure the improved long-term prospects for the business and its stakeholders. Etihad Airways’ stake in airberlin will remain unchanged at 29.21 per cent. airberlin will issue a further bond of a minimum of €150 million for general corporate financing purposes.

James Hogan, President and Chief Executive Officer of Etihad Airways, reaffirmed that Etihad Airways was a strategic minority investor in airberlin, and remained confident and committed for the long term.

He said: “The airline is clearly in a very challenging position. However, we are confident the business is moving in the right direction, and can be turned around but it needs an accelerated and fundamental restructuring. airberlin has our full support in this process.”

In addition to its subscription to a $300 million convertible bond, Etihad has also agreed to extend a $255 million loan to the German airline by another five years.
Also in addition to the convertible bond, airberlin also stated that it will issue a €150 million bond, arranged by Anoa Capital, to fund for general corporate financing purposes. The holders of the 2014 and 2015 bonds will be offered to exchange their existing bonds at preferential terms into the new bonds with a maturity in 2019.

airberlin has strengthened its management team to work on the turnaround-process, with the appointment of Marco Ciomperlik as Chief Restructuring Officer (CRO), effective from May.

In previous years, Ciomperlik has worked in a leading role in consultancy companies and the last five years in the role of Chief Maintenance Officer at airberlin where he successfully implemented restructuring projects in his area of responsibility.

Götz Ahmelmann will assume responsibility as Chief Commercial Officer as of 1 July 2014. Götz Ahmelmann has extensive experience in all commercial areas of aviation, most recently as of Head of European Sales at airberlin’s main competitor.
“On the basis of an improved financial structure, with a strengthened management capacity, we are able to intensify and accelerate the fundamental restructuring of the business,” said Wolfgang Prock-Schauer, CEO airberlin. “Even though the Turbine efficiency program has delivered according to plan and will take full effect in 2014, we have to increase the pressure during implementation, drive further measures as well as thoroughly evaluate our possible courses of action including airberlin´s long-term business model. This restructuring will focus on efficiency, while our core proposition to offer best service to our guests and partners remains unchanged. We value the confidence our shareholders and the capital market have placed in us to enable a more fundamental restructuring.”

Wolfgang Prock-Schauer also called upon Germany’s authorities to put more emphasis on creating a positive business environment for the aviation industry including the abolishment of the aviation tax. For airberlin, last year’s tax payment amounted to €142.9 million.

“With our successful and comprehensive recapitalisation we have the necessary financial breathing space to deeply restructure the airline and bring it back to operative profitability. We are putting out an attractive offer to exchange the 2014 and 2015 bonds with the aim to further ease and streamline the maturity profile going forward in order to support the focus on operational restructuring”, said Ulf Hüttmeyer, Chief Financial Officer of airberlin.

airberlin carried 31.5 million passengers last year, the fourth year in succession in which the company exceeded the 30-million mark. By focussing on core routes airberlin managed to achieve a better market position and to increase capacity utilisation by five percentage points to 84.8%. Optimised flight schedules enabled the company to reduce the fleet by 15 aircraft to 140 and to increase its leading market position in its two most important hubs Berlin and Dusseldorf.

With a reduced capacity offer of 5.1%, group revenues fell by 4% to €4.147 billion. The yield (revenue per passenger) increased by 0.8% to €121.0 (previous year: €120.1). Revenue per available seat kilometre (RASK) increased in 2013 by 1.3% to 7.24¢ while the costs per available seat kilometre (CASK) rose by 3.5% including fuel and restructuring charges.